Financing a Franchise
October 2017
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Financing a Franchise
What to consider when starting a franchise of a popular business

If the prospect of running a business interests you, but you would prefer to avoid the risk and creative demand of starting your own company, buying a franchise of an existing, established company offers a favorable alternative.

Becoming a franchisee does have its own risks to consider, however. It’s important to do your research and decide if entering into a contract is the right move for you.

Are you the right person?

The brand you’re considering franchising undoubtedly appeals to you in some way, but not every potential franchisee is suited to the brand. It’s crucial to undergo self-reflection to ensure you would fit the expectations and image of being a franchise owner.

Susan Adams of Forbes explains it as giving yourself a personality test. Your personality not only has to fit with the brand’s image, the product’s appeal and the clients you’ll be serving, it also has to fit the role of franchise operator—someone who thrives at expanding an existing model within a regulated system.

Do your research

Before you sign the contract and pay the franchising fee, you should examine every aspect of what you’re getting into—from the number-crunching to market health. Mya Frazier of Bankrate emphasizes that entering into a franchise agreement ties your livelihood to the success of a brand, so it’s important that the company you choose to align with has a record of positive experiences, customer loyalty and long-term sustainability.

Forbes’ Adams also underlines the importance of doing a thorough cost vs. benefit analysis to ensure you’re headed down the right path.

Know your target customers

Based on where you are opening a franchise location and what you will be selling, you need to have a clear target audience that you know you’ll be able to reach.

As entrepreneur Chris Hurn shared with The Huffington Post, it’s wise to join a company that has a clear and faithful niche audience, rather than attempting to broadly wrangle in as much of a wide demographic as possible. Hurn goes on to emphasize the importance of making the customer experience one that’s unique and memorable.

Understand the parameters

If you believe you’re making the right decision, then make sure you have all the numbers, costs, guidelines and expectations evaluated and they are discussed up-front, in detail.

Pore over the Federal Trade Commission’s franchise business model, which lays out what costs the franchisee may have and what control can be maintained by the franchisor. Mya Frazier of Bankrate recommends understanding your legal rights and limitations. Furthermore, Forbes’ Adams stresses the need to fully read any disclosure documents and paperwork, then consider hiring professional financial or legal advice if you still have questions (though avoid being taken in by a less-than-helpful franchise consultant).

Financing a franchise can be a daunting but rewarding endeavor if you know what you’re in for. With enough research and contemplation, you can find the right brand and location for your new storefront.

Published by Heritage Bank of Nevada
Copyright © 2017 Heritage Bank of Nevada All rights reserved.
Includes copyrighted material of IMakeNews, Inc. and its suppliers.
Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.
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